Capitala Finance Corp.
Q1 2021 Earnings Call Transcript

Published: 4 May 2021

[Operator:]

At this time, I would like to welcome everyone to Capitala Finance Corporation’s Conference Call for the Quarter Ended March 31, 2021. All participants are in a listen-only mode. Today's call is being recorded, and a replay will be available approximately three hours after the conclusion of the call on the company's website at www.capitalagroup.com under the Investor Relations section. The host for today's call are Capitala Finance Corp.'s Chairman and Chief Executive Officer, Joe Alala and Chief Financial Officer and Chief Operating Officer, Steve Arnall. Capitala Finance Corporation issued a press release on May 3, 2021, with details of the company's quarterly financial and operating results. A copy of the press release is available on the company's website.

[Joe Alala:]

Thank you operator. Good morning and thank you everyone for joining us today. Steve and I have some prepared remarks and will be around the balance of the day to address any questions you may have. We have decided to not have a Q&A session for this call, but again encourage you to reach out to us as we will address your questions and we are around all day. We are pleased to report an 11% increase in NAV during the first quarter of 2021 at $44.74 per share. This is our fourth consecutive quarter of NAV improvement. This is the result of improved performance of our portfolio of investments coupled with recent realized exits, examples, Burgaflex, CIS and Xirgo. Moreover, we expect the portfolio to continue to rotate out of both current debt and equity positions over the next several reporting periods. Our total debt-to-equity at quarter end was 1.6 to 1 down significantly from year-end at almost 2 to 1. Regulatory debt-to-equity was 1 to 1 at quarter end. During the first quarter, we repaid $20 million of SBA debentures, $6 million of which matured on March 1 2021 and $14 million of which was scheduled to mature on March 1, 2022. Since June 30 2020, we have repaid $79 million of SBA guaranteed debentures and $2.2 million of 6% notes, all from cash generated from investment portfolio activity and realizations. Note at June 2020, the total debt-to-equity was almost 2.7 to 1. Furthermore, we forecast to repay all SBA debt as part of this transaction. On April 2021, the company announced that the Board of Directors has selected Mount Logan Management LLC, an affiliate of BC Partners Advisors L.P. to serve as the new investment adviser to the company. We are committed to a smooth transition. We plan to hold a special shareholder meeting in late May seeking the approval of the new investment advisory agreement. We think this is the right time for the company to attach to a larger credit platform as Capitala Group continues to focus on the management of its various private funds focused on equity returns with yields.

[Steve Arnall:]

Thanks Joe. Good morning, everyone. Total investment income was $4.9 million for the first quarter of 2021, compared to $7.1 million for the first quarter of 2020. Interest and fee income declined by $1 million – $1.9 million for the comparable periods, resulting from a decrease in debt investments outstanding while payment in kind income declined by $0.3 million. Total expenses for the first quarter of 2021 were $5.7 million, a decrease of $1.4 million from the first quarter of 2020. Interest and financing expenses declined by $0.8 million, resulting from the repayment of SDA debentures in 2020 and 2021. Base management fees declined by $0.4 million, due to a decline in total assets. Net realized losses totaled $14 million or $5.17 per share for the first quarter of 2021, compared to net realized gains of $1.0 million for the same period in 2020. During the first quarter of 2021, the company realized a $14.2 million loss on its investment in currency capital LLC. However, the loss did not have an impact on net asset value as the realized amount was in line with our previous valuation. Net unrealized appreciation totaled $27.2 million for the first quarter 2021 compared to net unrealized depreciation of $43.4 million for the first quarter of 2020. The net increase in net assets resulting from operations totaled $12.4 million or $4.56 per share for the fourth quarter of 2021, compared to a net decrease of $42.4 million for the comparable period in 2020. Net assets at March 31, 2021 were $121.3 million or $44.74 per share, compared to $108.9 million or $40.19 per share at December 31, 2020. At March 31, 2021, we had $59.7 million in cash and cash equivalents. In addition, we had zero drawn and $25 million available on our senior secured credit facility with KeyBank N.A. Also, the company has SBA debentures outstanding, totaling $71.0 million with a weighted average annual interest rate of 2.62%, $72.8 million of fixed rate notes bearing interest rate of 6% and $52.1 million of convertible notes bearing an interest rate of 5.75%. The company's total debt-to-equity ratio at March 31, 2021 was 1.6

[Joe Alala:]

Thanks, Steve. So we are not having a Q&A today, but Steve and I are around all day. We will get proxies distributed this week for the shareholder meeting proposed on May 27. Most of the shareholders we have talked to strongly support the transition of the BDC to management – Mount Logan and BC partners. We as management strongly supported and the Board of Directors unanimously approved it. We're around all day. Thank you for your participation in this call and we look forward to hearing from you. Everyone have a great day.

[Operator:]

This concludes today's conference call. Thank you all for participating and you may now disconnect. Have a great day.

[End of Q&A:]